For example, Filmont Company has the following standard cost card for prime costs: Direct materials (3 yards @ $1.75 per yard) $5.25 Direct labor (1.2 hours @ $20 per hour) 24.00 Last month, Filmont produced 450 units. Actual cost for direct materials was $2,408 for 1,400 yards of direct materials purchased. Then, Materials price variance = $2,408 - (1,400 x $1.75) = $2,408 - $2,450 = $42 Favorable or Materials price variance = 1,400 x ($1.72 - $1.75) = $42 Favorable Notice that the second equation makes it easier to compare the actual price of $1.72 per yard ($2,408/1,400 yds) with the standard price of $1.75 per yard. Clearly, Filmont Company has paid $0.03 per yard less than standard. Multiplied by 1,400 yards purchased, the variance between actual price paid and standard price expected is $42. A note about "Favorable" versus "Unfavorable." Variances are tagged as favorable or unfavorable. By doing this, we don't need to remember whether actual is subtracted from standard or vice versa. Instead, if a cost is higher than expected (standard) it is "unfavorable" and if it is lower than expected (standard) it is "favorable." However, favorable does not mean "good" and "unfavorable" does not mean "bad." For example, suppose that the standard quantity of active ingredient in a drug was 1,000 pounds and the actual amount used was 800. That is a "favorable" quantity variance (less used than standard) however, the drug is 20% below the advertised strength of active ingredient - a bad result. Suppose that Filmont had paid $2,520 for 1,400 yards of material. The materials price variance would be $ Recall that Filmont Company, has the following standard cost card for prime costs: Direct materials (3 yards @ $1.75 per yard) $5.25 Direct labor (1.2 hours @ $20 per hour) 24.00 Last month, Filmont produced 450 units and used 1,410 yards of material. What is the standard quantity of direct materials allowed for Filmont last month? yards Materials usage variance = $1.75(1,410 - 1,350) = $105 Unfavorable The materials usage variance is unfavorable because more yards were used (1,410) than the standard amount allowed for the 450 units actually produced or 1,350 yards at standard (450 units x 3 yards). Suppose 1,306 yards had been used. The materials usage variance would have been $ Filmont purchased 1,400 yards of material but actually used 1,410 yards. Where did the other 10 yards come from? Additional purchases last month It is impossible for more to be used than purchased in a given month Materials inventory tandard cost is through: (1) wage T